Japan’s Ambiguous BRI Commitment

Mar 13 | 2018

Japan’s Ambiguous BRI Commitment

By Thomas Timlen

China is widely-perceived as the broader region’s beacon of hope for economic development and trade expansion, largely because of its ambitious Belt Road Initiative, or BRI, previously known as the One Belt One Road project.

As such, reports towards the end of last year indicating that Japan had decided to add its weight and money to China’s BRI received notable attention. Such a move by Japan was seen to have the potential to fast track infrastructure projects throughout the region. Reported plans included Japan’s intentions to boost cooperation with China on industrial modernization and logistics and financially support private sector partnerships, including loans through government-backed banks. Such moves were expected to remove reluctance among Japanese businesses to commit to the BRI in the absence of clear signals from its government.

Speaking to Breakbulk, Kris Kosmala, vice president at supply chain optimization specialist Quintiq, noted Japan already actively provides financial and engineering assistance on many infrastructure projects favoring Japanese designed and manufactured technology, as well as construction services. Considering the potential gains from Japan’s involvement with China’s BRI, Kosmala believed that joint delivery of BRI projects could make sense for some projects, however, “approvals and the division of responsibilities and revenues processes still need to be tested.

“Let’s not forget that in many cases the recipient country is responsible for financing, but might not have total control over the purpose of the construction,” he said, noting the Thailand-China high-speed railway. Funded as passenger-only service, Thailand would prefer to share it between freight and passenger traffic.

Project Cargo Boom?

Taken at face value, the reports would suggest that Japan’s involvement with China’s BRI could accelerate projects, ultimately benefiting all project cargo stakeholders. Yet, with multiple nations already engaged with China on the project, how much additional momentum will Japan’s involvement generate?

“Even though the project guidelines provided by the Japanese government talked about ports as something of a lesser area of interest, some port projects might be interesting areas of collaboration between Japanese and Chinese enterprises,” Kosmala noted. “The Thai government would like to see acceleration of projects in the Eastern Economic Corridor and interconnecting those developments with its own Laem Chabang port and port projects in Myanmar’s Dawei, Cambodia regarding Sihanoukville port and Vietnam regarding Vung Tau port. Thailand is a historically important destination of Japan’s foreign direct investment and is interested in seeing Chinese FDI grow as well. All in all, it’s a neutral ground for testing Sino-Japanese collaboration under the BRI funding.”

Beyond the impact Japan’s involvement would have on the pace of the BRI’s development, is Japan looking at the BRI as a central economic driver for the region, or simply hedging its bets?

“I would think it is premature to talk about solid commitment,” Kosmala said. “Most recently, Japan indicated preference for economic cooperation of the private sectors of both China and Japan in the fields of energy generation, solar power, wind power and gas or coal-fired power generation, industrial progress, and distribution of goods, but suggested that projects of potential dual purpose, for example ports and maritime terminals, might not be viewed positively. We need to see a few test case projects to demonstrate firm commitment and deep collaboration.”

Open And Transparent

Such caveats appear well founded in view of statements made by Japanese and Chinese officials. During an address at Japan’s Kanagawa Prefecture in November, Japanese Foreign Minister Taro Kono reportedly said that China’s BRI will be “highly conducive to the global economy if carried out in an open manner that is available to all.”

At the time the “if” was seen as significant, possibly as an expression of Japan’s concerns that not all nations were equally welcome to partake of the BRI’s development, implementation and eventual benefits. Among observers, such phrasing used by Japanese officials is known as “Aimai,” translated as “ambiguous” in English, and not accidentally.

Chinese foreign ministry spokesperson Lu Kang downplayed Kono’s inference when informing journalists that BRI “is an important international public good China has offered in a bid to promote development cooperation, and it is set to be an open and inclusive cooperation platform from the very beginning. China always upholds the principle of wide consultation, joint contribution and shared benefits and acts in the silk-road spirit of peace and cooperation, openness and inclusiveness, mutual learning, and win-win cooperation to deepen mutually beneficial cooperation with various parties.”

Masahiro Kawai, representative director of the Economic Research Institute for Northeast Asia, discussing Japan’s perspective on the BRI last year, pointed out that in June 2017, Prime Minister Shinzo Abe gave support to the BRI with four conditions, namely that the BRI should be:

• Harmonious with a free and fair trans-Pacific economic zone;

• Make infrastructure facilities open for use to anyone;

• Have transparent and fair procurement rules;

• Should finance only economically and financially viable projects so that the borrower country can repay related debt.

Japan’s continued hesitation to join the Asian Infrastructure Investment Bank, or AIIB, would indicate that there is still a need for more robust commitments from China on these concerns. India, despite its concerns regarding the BRI’s encroachment on the disputed territory of Kashmir, has joined the 64 other AIIB members, however neither Japan nor the U.S. have yet joined. In the meantime, both countries do sit on AIIB’s International Advisory Panel.‘Solid’ Agreements

There are no delusions among observers or the respective officials involved that there is still a challenging road ahead before China and Japan can reach a solid agreement on the BRI. As China’s Foreign Minister Wang acknowledged in late January, telling his Japanese counterpart that “there is positive progress, but many disturbances and obstacles remain.”

Those obstacles include territorial disputes and the threat of nuclear war, which tend to elbow the BRI aside. The East China Sea dispute between China and Japan regarding the islands of Senkaku/Diayu, nationalized by Japan in 2012, is an ongoing source of resentment. Then, at the start of 2018, Japan urged China to take a more robust approach to address Pyongyang’s ambitions with nuclear weapons.

Although Japan’s Prime Minister Shinzo Abe has been quoted saying that “Japan will be able to cooperate well with China,” ample signs of hedging remain.

In November, Japan’s Bank for International Cooperation and Nippon Export and Investment Insurance signed memorandums of understanding with the U.S. government’s development finance institution, the Overseas Private Investment Corp. The MoUs highlight the countries’ joint commitments to tackling development challenges and bolstering investment in infrastructure, energy and other critical sectors throughout Asia and the Indo-Pacific, as well as in the Middle East and Africa.

President Donald J. Trump described the agreements as “a major development that will advance our shared interests in the region.”

The MoUs followed 2017’s Japan-U.S. Economic Dialogue, at which the governments committed to bolster energy and infrastructure projects in emerging markets. Similarly, Japan and India agreed to work together to elevate their partnership “to advance common strategic objectives at a time when the global community is faced with new challenges.”

In September 2017, Prime Minister Shinzo Abe met with India’s Narendra Modi. The two affirmed their strong commitment to their “values-based partnership in achieving a free, open and prosperous Indo-Pacific region, where sovereignty and international law are respected, and differences are resolved through dialogue, and where all countries, large or small, enjoy freedom of navigation and overflight, sustainable development, and a free, fair, and open trade and investment system.”

Level Of Influence

How involved will Japan’s engagement with China’s BRI be in the absence of a solid agreement?

“It depends on the level of influence that Japan gets at the AIIB, as well as level of joint participation between specific companies in both countries,” Kosmala said. “From comments made by the Japanese side, there is clear desire to be part of the largest and most strategic projects, but I could see Japan balancing participation in BRI funding mechanisms with their own direct engagement favoring Japanese-only technology, know-how and products.”

Whether Japan’s overtures towards engagement with China on the BRI are nothing more that diplomatic “Aimai,” the multitude of initiatives riding on the coattails of China’s BRI leave little doubt that interconnectivity throughout Asia, and beyond to Europe and Africa, is to get a significant boost.

Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.

Photo credit: Shutterstock

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